Three rate hikes remain “a good baseline,” although depending on the economy it may be more or less, Federal Reserve Bank of Dallas President Robert Kaplan said in a televised interview Thursday.

“I still think the median of three rate increases for this year – we’ve already done one – is still a good baseline,” Kaplan said on Bloomberg TV. “If the economy develops a little more slowly then we can do less than that. If the economy is a little stronger, we can do more than that.”

Some slack remains in the labor market, although it has made “good progress” toward full employment.

Federal Reserve Bank of Dallas President Robert Kaplan
Federal Reserve Bank of Dallas President Robert Kaplan Bloomberg News

Inflation, he said, remains a “trickier issue.”

The Fed can be patient raising rates, he noted, explaining that means it has the flexibility to “wait and see how the economy unfolds” because the neutral rate is closer to 2% than 3%. “We’re still accommodative but we don’t have that much room to get to neutral.” The current rate, Kaplan said, is “a good place to be.”

Kaplan said his forecast doesn’t assume fiscal reform, since some parts could be positive while “some policies could be negative.”

Turning to the Fed’s balance sheet, Kaplan said, "we need to get a little further along in normalization of rates before we let the balance sheet run off."

He expects the process to begin later this year or early next year. The balance sheet trimming should be phased in gradually and he said the Fed should announce its plan “a couple or three months before it starts.”

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